Time to update old ideas like the universal job guarantee: analysis
The blockage due to coronavirus disease (Covid-19) is estimated to have tripled the urban unemployment rate in its first three weeks. According to the Reserve Bank of India, a full recovery seems unlikely in the near future, and business sentiment has gone from negative to pessimistic.
The recently announced government economic package does little for urban workers, most of whom are irregular informal workers. Most of them, from 62 to 85%, do not have access to benefits such as provident funds and insurance, which constitute the emblematic schemes of the government for Covid-19 aid directed to said workers.
Policies to protect workers are being discussed around the world. Like the UK payment of 80% of wages for laid off workers and a universal basic income. A closer home, the Confederation of Indian Industries (CII), urged the government to provide a fiscal stimulus of Rs 2 trillion, which could support 200 million low-income people with Rs 10,000 each. Many of the proposals presented insist on specific direct transfers, often through bank accounts based on biometric identification. The IIC specifically mentions a “direct benefit transfer based on Aadhar.”
Targeting based on income and cashing checks can be easy in economies with extensive tax and payment systems. For vulnerable groups in India, correct targeting and timely payments are permanent problems. Detailed data is missing. For example, only 7% of adults file taxes, and available statistics on the workforce make it difficult to accurately identify unemployed people. There is increasing evidence of exclusions and omissions, and payment failures and misaddressing of the Aadhar-based system, even in normal times and in areas where it has been in operation for a while.
Economists have long recognized the informational challenges of specific payments. They have advocated for job guarantees because they are self-directed. A needy rural home and rural owner have access to work under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), but the owner is unlikely to take excavation pits for Rs 202 per day.
These reasons motivated MGNREGA to cover all rural households, and the government hopes to trust it to create rural jobs once the rules of social distancing are relaxed. It is time to be bolder than this. A universal job guarantee should be on the table to cover the many workers in precarious work situations across the country.
Even in more advanced countries, national statistics have proven to be inadequate for registering informal workers outside the organized sector, especially the new generation of temporary and independent workers in cities. To understand the value of the job guarantee for such workers, the London School of Economics Center for Economic Performance surveyed more than 16,000 people in India in 2018. It found that, on average, an urban worker is willing to take a 15% reduction in salary to obtain a guaranteed number of work days in a year.
Our survey showed that migrants were much less likely than non-migrants to pay for emergency expenses. They also put a higher value on having a job guarantee. Although a universal program would not have overcome the immediate plight of discovered migrants, it is certainly fair to say that the holes in coverage created by specific payments have not been adequately weighed in policy discussions.
The automatic orientation features of a universal job guarantee make it fair and cost-effective. A 100 day job guarantee with a daily salary of Rs 200 (similar to MGNREGA) would cost Rs 20,000 per person. Suppose that all casual workers (13% of the urban workforce of 300 million people), regardless of income, assume the job guarantee. To calculate how many other people take it, add the value of 15% that workers assign to have a job guarantee, and we end up with a daily value of Rs 230. In urban India, 16% of the workforce, including those They are unemployed, earn less than Rs 230 from other works, and suppose they all take the job guarantee scheme. From the back of the envelope calculation, an urban job guarantee would cost Rs 1.74 trillion, or 0.8% of India’s annual GDP.
Many may consider Rs 200 obscenely low. At 400 rupees a day, the estimated cost of providing a 100-day job guarantee would be 6.6 trillion rupees. In reality, the costs are likely to be much lower, because the acceptance rates here include government workers and business owners, who place much lower values on the job guarantee.
Importantly, these costs do not outweigh the potential benefits of skills for young urban workers, 93% of whom have no formal or on-the-job vocational training. A job guarantee could lift some of your discouragement, as documented for young UK workers during the New Deals in the late 1990s.
In a time of severe economic insecurity, a promise, not even a real outlay of 1 to 3% of GDP, is a minuscule sum to restore the dignity of those who may have been forgotten. This is not the time for “technophiles” to dogmatically cling to the libertarian ambitions of selective bank transfers as an end in itself. The old ideas of job guarantees have value in today’s tough economic times.
Swati Dhingra is Associate Professor, Department of Economics and Center for Economic Performance at the London School of Economics.
The opinions expressed are personal.